Lawmakers Look to Fix Physician Payment Formula

Several prominent members of Congress have voiced their determination to do away with the annual ritual of having to legislate a physician pay raise through Medicare. The lawmakers also want to find an acceptable alternative to the sustainable growth rate, or SGR, formula now used to set physician payments.

Rep. Mike Burgess, M.D., R-Texas, who is an obstetrician, last month introduced a bill that would give physicians a pay increase next year and thereafter link annual pay increases to the Medicare economic index, or MEI. Specifically, the bill, H.R., 5866 (at the Library of Congress’ THOMAS Web site, type in “HR 5866” after selecting “Bill Number”) calls for pay to be based on the MEI minus 1 percent. The proposed legislation, known as the “Medicare Physician Payment Reform and Quality Improvement Act of 2006,” also would allow physicians to “balance bill” some Medicare beneficiaries.

In introducing the bill in a July 24 speech on the House floor, Burgess said the legislation “has four main goals: first, to ensure that physicians receive full and fair payment for services rendered; secondly, to create quality performance measures that allow patients to be informed consumers when choosing their Medicare provider; thirdly, to improve Quality Improvement Organization accountability and flexibility; and, fourth, to find reasonable methods of paying for these benefits.”

“It may not a perfect solution, but it would be great to get rid of the SGR,” said Jerome Connolly, a senior representative in the AAFP Government Relations Division. Although the “minus 1 percent” stipulation would mean that every year, physicians would receive less than the medical cost inflation rate for that year, they still would be guaranteed some pay increase. Under the current SGR formula, physicians are slated for a 5 percent cut as of Jan. 1, 2007.

According to a statement (PDF file: 9 pages / 920 KB. More about PDFs.) submitted by the AAFP to the House Energy and Commerce Committee, which recently held two hearings on the subject, “The current Medicare payment system for physicians does not work. The SGR formula must be repealed and replaced with a stable and predictable annual update … Such payments should be linked to health care quality and efficiency and should reward the patient and physician behavior that provides the best results.”

The Academy also spearheaded a letter campaign that has generated 1,269 messages to members of Congress urging action on the issue.

Congressional leaders such as Rep. Joe Barton, R-Texas, and Sen. Chuck Grassley, R-Iowa, both chairmen of influential committees, called for action this year.

CMS Director Mark McClellan, M.D., Ph.D., acknowledged that the SGR wasn’t sustainable. “We can’t pay this way anymore,” he said during questioning at the Energy and Commerce Committee hearing.

However, simply adding money for higher physician payments would only push up premiums and other costs for Medicare beneficiaries, McClellan added. The administration could not support any permanent changes to the current formula that were not associated with cost-saving measures to offset any increase in what the agency pays physicians, he warned.

McClellan said that pay-for-performance programs are part of the solution and that demonstration projects have been moving forward with the help of physician organizations.

“Thanks to the leadership of some physician groups, particularly the American College of Physicians and the American Academy of Family (Physicians), we actually do have some outcome-related quality measures that physician groups feel confident we can start reporting soon,” he said.

That cooperation is a matter of survival, not choice, for physicians facing major payment cuts, said Rep. Charlie Norwood, R-Ga.

“Try not to kid yourself into thinking that everybody who is practicing medicine out there believes that bureaucrats in Baltimore or Washington, D.C., know how to improve health care in this country,” he said.

The Medicare program would be better served by physicians who could focus on patient care, without the distraction of trying to make ends meet, Norwood added.

Although the interest in changing the formula may be there, it’s not clear whether there is the wherewithal. Any raise for physicians comes with a hefty price tag. According to Congressional Budget Office testimony in “Medicare’s Physician Payment Rates and the Sustainable Growth Rate,” (PDF file: 17 pages / 96 KB. More about PDFs.) linking physician payments to the rate of medical inflation would increase Medicare’s costs by $58 billion over the next five years.